Last night while sitting in the most secure funding organisation in the game, I decided to jump into a few of my favourite sites and look at LIBOR Rates and Credit Margins.

The good news, I believe, is we hit rock bottom on 10th April, 2008… or the ceiling, with and LIBOR 90-day Aussie hitting 7.97%. I believe that this will be the bottom because it really coincides with the Bears Stearns fall out and the uncertainty of MGIC, PMI, Freddie and Fannie.

When you look deeper you can see spreads are compressing. In fact, since 10th April the rates have gone down, 30th June to 7.81%, 29th July to 7.79% and then free- fallen to 27th August of 7.25%. “I’m freeeeeee, free falling!” – sorry I don’t know why I like that song but for some reason it seems appropriate.

My prediction: “if you’re rated less than ‘A’… I think they are really going to struggle…” I dont think we will see the likes of the smaller unrated organisations again, until next big property/credit boom.

On the brighter side, I think margins are getting healthier and this will mean new bigger off shore entrants to the market in 2009. Imagine a savvy Morgan Stanley? In fact, this fits with the bigger players because they must diversify their funding markets, as they would be crazy to have, “all your eggs in one basket,… again!”

Ciao Jimmy G

I belive your view point is a little narrow and perhaps history has tainted your view on the way the economy is trading now. . . .

it has been said, we are in different circumstances to the 80’s and 90’s. The mortgage market is more sophisticated in AU than the US and the UK though dealing with the same issues. Comm cuts, funding crisis, and the banks startign to control monetary policy through self imposed rate increases. . . Yippee. . .

The comment about rationalisation will remain, there WILL be business to be written, there just wont be as many people around to write it. Critical mass is the way of the future. Lets just look at WBC & St george? lets look at Challenger/ PLAN etc. . . Get big or get out!! (M&A)

Talk to any of the leaders of the funders/ aggregators. . .they dont know the path ahead, they have just locked their sights on the direction and hoping it will see them profitable. . . trading solvent. . .

The organisation that is able to adapt and act the most efficently and effectively will survive. .

The people that will be bankrupt and suiciding are surely the people who are unaware of the market conditions and should not have been in the market at all. . They are probably the mobile phone salesmen that decided to go into mortgages. . . the ones who dont know what EBIT is. .

THE WRITING IS ON THE WALL. . .

18 months. . .

I’ve been questioning why Royal Bank of Scotland, Fortis and Barclays
Banks would all come out in the same week with the same forcast for a
complete melt down of the U.S. Financial System between August and
Sepember 2008. Actually I have been telling family and friends it was
coming and would hit exactly then since late 2007, but it surprised
me that these 3 banks out of no where backed up my timing of things.

Well it didn’t come out of “No Where”! Google ( September 2008 )
The third entre down should read “Global systemic crisis/September
2008. It’s a European report that has been following the crisis since
February 2006 and they update quarterly, it’s their prediction of
what is about to hit and why. If they are correct, it’s much worse
than I even saw coming and “a return to a normal market” may never
be in the cards or at least serval years away.

Have a read, then read the the linked story 9Top right hand side
in the Blue Section and that one times it to start after the
Olympics as China wants that out of the way before they sell the
U.S. out.

Be Safe!

JT

Interestingly, when official rates came off over the next few years to 1994, this is when the ‘new’ industry of mortgage brokers kicked off.

Even though the credit markets are in meltdown and the major banks are making hay whilst the sun shines, brokers will be needed. Sure, some will leave, but exactly the same thing occurred within the real estate & share broking industries have whenever there is a market downturn.

The smart & robust operations will survive.

PS I also remember the days of 15.95% 5 year fixed home loans too, with 4 month payment penalties is discharged within the five years. We wrote truck loads of the stuff and we didn’t have to look for it either. Clients came in droves to our door. But rightly or wrongly, it satisfied a need.

Although I did not experience first hand the issues of 1978 - 1983 and I do know this is a different kettle of fish altogether I forsee very good brokers that have thriving businesses that will struggle and may vaery well be forced to close simply because there are so many variables to deal with all at the same time.

The term criticl mass comes to mind!

Take care (& try to stay sane!)

ES

So while I think access to non-bank money will dry up further over the next 18 months I still believe broker services will be in demand. Banks still need distribution.

I fondly recall days underwiting in those 18% times when borrowers were choosing to fix at 15/16% - only to be stung $10k exit fees when they wanted to rollover to variable rates later. Bad days indeed.

Reading the comments I can tell most of you did not live through
(As an adult anyway) the 1979 - 1983 18% interest rates. Someone
earlier stated there will always be business “Not So Mate” those
that did make a living during those years did not do it in Real
Estate Sales or Mortgage Lending. People were wiped out financially
they committed suicide, went bankrupt, it was a bloodbath. I think
the last comment insinuated closing up somehow means the person
does not know how to run a mortgage business. If you are still
open for business by October 2008, I can assure you, you’ll be ask-
ing yourself.(WHY?)

Now that disaster was caused by the Federal Reserve choking off inflation and it lasted nearly 4 years. This disaster is out of
control and the Federal Reserve and U.S. Treasury can’t stop the
Train Reck from happening and when it happens September 2008it
will have global effects that will not recover for years to come.

Cheers & Be Safe!

JT